Key Takeaways From Year One Of The Slovak FDI Regime – Inward/ Foreign Investment

The first comprehensive Slovak foreign direct investment (FDI)
screening regime entered into force on 1 March 2023. Now that the
first year of this new FDI regime is behind us, below we summarise
the key takeaways based on our practical experience with this
law.

Statistics of FDI proceedings in Slovakia

Based on publicly available unofficial statistics, it seems that
14 FDI proceedings were initiated during the first year of the
Slovak FDI regime, with Schoenherr advising on five of them. Seven
of these proceedings were mandatory screenings, with no
prohibition, no approval with remedies and no call-in by the
authority. Official statistics should be published in summer
2024.

Approach of the FDI authority and timing of screening

There has been uncertainty regarding how the FDI authority, i.e.
the Ministry of Economy (the “Ministry”), will exercise
its powers under the new FDI regime. This uncertainty pertains
especially to the interpretation of some unclear definitions,
formalities, timing, voluntary filings or potential call-ins. In
practice, however, FDI screenings are running smoothly, with the
Ministry taking an open and forthright approach. The Ministry is
very open to discussions on any point regarding the potential need
to file a notification or during actual screening, while case
handlers are available and responsive. We have also seen the
Ministry be prepared to change its position – on formalities,
for example – upon submission of a reasoned statement. Even
though screening timeframes are regulated by law (45 days in the
case of voluntary filings and 130 days in the case of mandatory
filings), actual FDI screening periods can be hard to anticipate.
The Ministry frequently uses its powers to request additional
information, both from a foreign investor and a target group, which
suspends the review period. In general, however, after submitting a
complete notification, the Ministry issues approval decisions
within three to four months.

Voluntary filing guidelines

In addition to mandatory filing (related to investment into
critical targets), the Slovak FDI Act introduced a voluntary filing
applicable to investments into non-critical targets, while leaving
unclear what investments are covered by this possibility. Voluntary
filing serves mainly as a tool to avoid a potential call-in of the
transaction by the Ministry after closing, which otherwise would be
possible within two years. In the first year of the FDI Act, the
Ministry published guidelines specifying circumstances in which
voluntary filing is highly recommended, given the increased risk of
a potential call-in of a transaction. Risk criteria include:

• the target supplies goods and/or services to the state,
  operators of critical infrastructure or essential providers with
  increased cybersecurity risk, especially if the supplies have a
  unique feature or are difficult to replace by alternative goods
  and/or services;




• the target is involved with R&D or innovation, financially,
  in personnel, or in any other way, based on a contract concluded
  with Slovak universities or academic institutions, particularly in
  the fields of energy (including renewable energy), semiconductors,
  artificial intelligence (biometrics and data mining) and
  biotechnology;




• the target participates in projects of EU interest listed in
  the EU FDI Regulation.

Even if the transaction falls outside these risk criteria, the
Ministry encourages foreign investors to proactively apply for
voluntary filing to eliminate the potential risk of a call-in.

Frequent requests for further information

In general, the Ministry tends to frequently use its powers to
request additional information for both mandatory and voluntary
filings, even though the Slovak application form requires
comprehensive information. These requests are targeted both at a
foreign investor and at a target group and usually involve multiple
rounds of requests. Requests for information differ from one case
to another, but in our experience, the Ministry often focuses on
the following topics:

• personal data processing (especially access of a foreign
  investor to the data of a Slovak target) and cybersecurity;




• supply continuity of the offered products/services and
  introduction of new products/services;




• impact of the investment on existing contracts (especially in
  relation to public entities or other critical entities);




• rationale and general aim of a transaction.

Importance of the EU Cooperation Mechanism (EUCM)

The EUCM allows the European Commission (EC) and other EU Member
States to provide their view on the investment. Information
provided to the Ministry from other Member States or the EC is
presumably a significant source of information about investments
that could potentially threaten public security in the Slovak
Republic. The Ministry also uses the EUCM to identify potential
transactions that are subject to Slovak FDI screening (and were not
filed). It is proactively contacting foreign investors to remind
them of their obligation to file. As the Ministry becomes
increasingly familiar with the EUCM, we also expect call-ins to
play a larger role in the Ministry’s activities.

Conclusion and outlook

FDI filings in Slovakia have become a common feature of M&A
transactions over the past year. The authority’s practical and
open approach certainly helps to achieve smooth screenings, but
some areas have yet to be clarified, such as the scope of
transactions for voluntary screening or the applicability of FDI to
certain transactions (such as pledges). It is therefore important
to analyse the potential FDI implications of transactions with
targets that have a presence in Slovakia. In the upcoming years, we
expect an increase in enforcement activities by the Ministry,
including call-ins, especially based on information from the EUCM.
Additionally, we anticipate that the Ministry may expand the list
of circumstances in which voluntary filings are advisable, and that
the government might expand the list of transactions subject to
mandatory screening, even before the implementation of the planned
revamped EU FDI regime.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.